I’ve been a CPA for over 20 years now and have seen mistakes on W-9 forms every one of those years. It seems like a simple form at first glance, but the W-9 form itself has 6 pages of instructions with almost 6,000 words. Behind those condensed instructions on the W-9 form is a massive set of IRS tax code regulations. Helping vendors and independent contractors create a correct and complete W-9 form is one of the reasons we started W9manager.

#5 – The name on line 1 of the W-9 form is blank

At times vendors can become confused between the names on line 1 and line 2. They can mistakenly fill in only the business name on line 2 and leave line 1 blank. Line 1 is the legal name that the business or individual uses on their federal tax return and is required by the IRS. It is imperative that the name on Line 1 and the taxpayer identification number (typically an EIN or SSN) given on the W-9 form match to the IRS’s records. This will ensure that the IRS can apply any 1099 information received to the correct taxpayer account. If they don’t match, the IRS won’t have confidence in the information provided and will send an error notice back to the reporting company. This could lead to a 24% deduction in the vendor’s payment moving forward to satisfy IRS backup withholding requirements.

When using our guided form in W9manager, the user is required to complete line 1. It is a required field and the user cannot continue to the next section until complete.

#4 – The W-9 form is not signed

Not all W-9 forms are required to be signed, but the best practice is to require that all vendors sign them unless the company understands all the situations in which a signature is required. Vendors send in W-9s that aren’t signed and the accounting department at the company receiving the W-9 doesn’t always check for this.

When using our guided process in W9manager, a signature can be required when a W-9 form is sent to your vendor. As an added benefit, one user can complete the W-9 form and then send it to another user to sign.

#3 – The tax classification is not checked

Another mistake we see is a W-9 form without any tax classification checked. Line 3 of the form requires that the person completing the form check the appropriate box for the federal tax classification of the entity or person noted on line 1. This helps the company making the payment to the vendor (the payee) to determine if the payment is reportable on a 1099 form. Without this information, the payee will have to assume a 1099 is required for all reportable payment made to the vendor. They won’t be able to exclude entities that are often exempt from receiving 1099s.

The first step users must do when creating a W-9 form in W9manager is to select their tax classification. They are not able to move to the next step without selecting a valid option.

#2 – Disregarded entity used on line 1 of the W-9 form

One of the most misunderstood concepts of the W-9 form is a disregarded entity. And consequently, because companies don’t understand this concept, listing the disregarded entity on line 1 is one of the biggest mistakes made on W-9 forms. When the disregarded entity name and TIN is then reported on a 1099 it can lead to the reporting company receiving a large number of CP2100 notices from the IRS. These notices require the company to request a new corrected W-9 form from their vendor or start backup withholding 24% on the vendor’s future payments.

A disregarded entity is an entity that the IRS “disregards” for tax purposes or completely ignores. The IRS looks to the owner of the entity and all the tax liability flows to the owner of the entity. The best example is an LLC that is owned by one individual. The IRS “disregards” the LLC and requires that the individual owner’s information be provided on the W-9 form. For more information on disregarded entities, see our blog article, What is a Disregarded Entity?

When completing a W-9 on W9manager users work through a multistep process to determine if they are a single-member LLC. If they determine that this is the case, W9manager directs them to use the owner of the LLC on the W-9 form. This process helps to reduce the number of disregarded entities listed on line 1.

W-9 form mistake #1 – The type of limited liability company is not provided

The number one mistake we have seen vendors make on a W-9 forms is forgetting to include the type of LLC. This is critical as it determines whether the LLC can be treated like a C or S corporation for 1099 reporting purposes. Most payments made to C or S corporations are not required to be reported to the IRS on a 1099. However, payments made to LLCs that are partnerships or owned by an individual person are often reported.

One of the steps that users are guided through when completing a W-9 on W9manager is to select the type of LLC that they have. We ask them if they have filled out Form 2253 or 8832 with the IRS to be taxed as an S Corp or C Corp. If they select one of these options, we note their LLC tax classification as S or C respectively. If they have not filed either form, we then ask them if they are a single or multi-member LLC. Multi-member LLCs are treated as a partnership and single-member LLCs are asked to use the owner’s information.

Additional References

Use W9manager’s guided process to create your W-9. It’s always free!

In conclusion, we feel that all of the top 5 mistakes made on W-9 forms can be avoided when creating a W-9 form using W9manager. Use W9manager’s guided step-by-step process to help create the most correct and complete W-9 form. It is always free to create and send your W-9 form. W9manager is not just another blank PDF form site. Every step of the way has contextual help buttons tailored to your specific circumstance. The W-9 form is then electronically signed and sent securely sent to the requester.

You can then store your W-9 form centrally using W9manager. Log into your account later and send it as needed. If you need to create multiple W-9s for more than one company or individual, W9manager allows you to create multiple companies to manage them separately. Finally, you can also use your mobile phone to send your W-9 from anywhere, to anyone, at any time.

Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

In the instructions section of IRS Form W-9 there is a “Specific Instructions” paragraph that provides guidance to LLCs with more than one member. Line 1 is mandatory. Line 2 is optional.

Line 1

You must enter one of the following on this line; do not leave this line blank. The name should match the name on your tax return.

c. Partnership, LLC that is not a single-member LLC, C Corporation, or S Corporation. Enter the entity’s name as shown on the entity’s tax return on line 1 and any business, trade, or DBA name on line 2.

Line 2

If you have a business name, trade name, DBA name, or disregarded entity name, you may enter it on line 2.

Single member LLC – In this case the LLC is considered a disregarded entity and one should look to the owner’s name and TIN number to provide on the W-9, not the LLCs. (Provided the owner is not another disregarded entity [typically a single owner LLC] which in that case you would look to the next owner up the line that is not a disregarded entity.)

Multi member LLC – Pursuant to the entity classification rules, a domestic entity that has more than one member will default to a partnership. Thus, an LLC with multiple owners can either accept its default classification as a partnership, or file Form 8832 to elect to be classified as an association taxable as a corporation. If they elect to be treated as a partnership they would file Form 1065, U.S. Return of Partnership Income. For W-9 purposes they would use the LLC’s name on Line 1, check the “limited liability company” box on Line 3 and write in “P” for P=partnership on the line. The LLC’s TIN number would then be used in Part I.

LLC that has elected S-Corp Tax Status – If the LLC has filed Form 8832 to elect to be taxed as a corporation, followed by From 2553 electing Subchapter S status, they would put the name of the LLC on Line 1, check the “limited liability company” box on Line 3 and write in “S” for S corporation on the line. The LLC’s TIN number would then be used in Part I.

LLC that has elected C-Corp Tax Status – If the LLC has filed Form 8832 to elect to be taxed as a corporation only, they would put the name of the LLC on Line 1, check the “limited liability company” box on Line 3 and write in “C” for C corporation on the line. The LLC’s TIN number would then be used in Part I.